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Fed hikes rates. Here’s what to do now

By Holden Lewis · Bankrate.com
Wednesday, March 15, 2017
Posted: 2 pm ET
Fed hikes rates. Here's what to do now

Tuomas Marttila/Getty Images

Interest rates on credit cards and home equity lines of credit will go up soon as a result of the Federal Reserve rate hike.

The central bank's monetary policy committee raised the federal funds rate by one-quarter of a percentage point today. The prime rate will rise by tomorrow morning to 4 percent from 3.75 percent. Rates on credit cards and home equity lines will follow, because they are tied to the prime rate.

The Fed held to its forecast for three rate hikes this year, meaning we can expect two more.

What to do

To blunt the impact of higher rates on your pocketbook, reduce any balances you carry on credit cards. Better yet, move your credit card debt to a low-interest balance transfer card.

If you carry a balance on your home equity line of credit, or HELOC, pay it down to avoid higher interest payments in the future. The popularity of home equity lines of credit has surged in recent years, as homes have finally regained equity after the housing crash. Many homeowners get HELOCs to fund home renovations or to use in an emergency.

Interest rates on auto loans are not directly tied to what the Fed does, but they probably will rise following this rate hike. It makes sense to finance a car now, before the Fed raises rates yet again.

Mortgage rates went up last week, before the Fed's action, and they are on an upward trend. This is a good time to shop for a mortgage, right before homebuying season begins. Use Bankrate's mortgage calculator to figure out how much you can afford to borrow.

It pays to wait to buy a certificate of deposit, because CD yields tend to respond sluggishly to Fed rate moves. Higher CD yields are one of the good things arising from Fed rate hikes.

Why the Fed raised rates

The economy continues to grow, and appears to be near full employment. That's a recipe for inflation. By raising the federal funds rate, the central bank is trying to keep inflation from going much above 2 percent.

"They're saying, 'Let's go, let's get out in front of the curve, let's take advantage of this opportunity," says Alan MacEachin, chief corporate economist for Navy Federal Credit Union.

In February, the economy grew by a net 235,000 jobs, which reflects a vibrant economy.

But the Fed continues to keep interest rates "quite low," notes Federal Reserve Board Chair Janet Yellen. "We are neither pressing on the brake or pushing down on the accelerator."

For more on Yellen's news conference that followed the rate announcement, find Bankrate senior economic analyst and Washington bureau chief Mark Hamrick on Twitter, @hamrickisms.

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David myers
March 16, 2017 at 8:48 am

Hello all,
Now's a good time to get out of debt and to stay out of debt.
It only ends up costing you in the long run. It robs you of savings for retirement as well as a liquid fund for emergencies.
No a HELOC or credit card is not an emergency, but instead gets you into deeper trouble.
So in turn being out of debt,when the fed decides to raise rates for what ever unknown reason, you won't have to worry about it .

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